August 16, 2018

The Devil In The Fine Print Of Mortgages

Mortgages sometimes have costly or irritating restrictions that you won’t know about unless you read the fine print, it’s not all about the interest rate.

  • Restrictions on breaking your mortgage before the term is up
  • Restrictions on breaking your mortgage for the first 3 years
  • Interest rate differential penalties on fixed and variable rates
  • Inability to port unless the purchase and sale take place on the exact same day
  • A poor conversion rate guarantee
  • No refinances during the first year
  • Amortization limits of 25 years
  • Minimum amortizations of 15-18 years
  • Restrictions on converting from a variable rate to fixed rate for the first 6 months
  • No ability to break your “open” HELOC without a penalty
  • No pre-payments within 30 days of discharge
  • Inability to port across provincial lines
  • High administrative fees when porting
  • 100% clawback of cash-back if the mortgage is broken before maturity
  • Requirement for a full banking relationship with the lender
  • No lump-sum pre-payment privileges
  • No annual payment increase allowance
  • Pre-payments restricted to one specific day a year (instead of any payment date)
The list could go on…  Keep a lookout for restrictions like this when comparing different mortgages.

If you need any further clarification on any of the above, I would be pleased to help in any way

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on our site or call 416-459-2406

Private 2nd Mortgages

Have you ever heard the term “Private Mortgages”?  Exactly what does it mean.


Private mortgages represent an investment into real property by an individual, just like you or me. They can invest cash or utilize their RRSP funds to hold the mortgage.  Individuals that do a lot of investing quite often form a corporation to hold their investments. 

Why would an individual invest in a mortgage?  The usual reason is because of the interest rate.  Just like in the stock market, the higher the risk, the greater the return. 

The next question would be, why would a client pay a higher interest rate.  To explain the benefit to both parties, let’s take a look at a typical scenario.

Mr. Smith has a 1st mortgage with a Bank for $300,000 at a rate of 4%.  He has accumulated credit card debt totalling $80,000 and his house is worth $500,000.  The payments on the $80,000 debts are $2,400 per month (3% of the outstanding balance).  His Bank won’t lend him the money because his monthly payments are too high.  A private lender will probably charge 12% and now his payment will be $800 per month.  

This is a win win situation as the private lender earns a great rate of return and Mr. Brown cuts his monthly payment by $1,600 per month.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on our site or call 416-459-2406

Paying Down Debt Makes Sense

It has always been a dilemma of whether you should use any excess cash to contribute to your RRSP or pay down your mortgage.  The current economic equation has recently tilted in favor of paying down debts vs. building up assets but only for those people with a low tolerance for any investment risk.  The current interest earned from GICs, term deposits and government bonds remains pathetically low.
For those risk-adverse savers who abhor the volatility of the stock market, money is earning 3%, if you are willing to lock in for a few years and less than 1% on deposit accounts.  It takes 72 years to double your retirement nest egg if you only earn 1% per annum.

If you are paying from 3-6% on your mortgage then your are effectively destroying your wealth.  It’s the debt equivalent of constantly buying high and then selling low in the stock market. 

Here is how to think about the trade off between paying down your mortgage versus saving in your RRSP.  Every dollar you don’t contribute to your investment portfolio will earn the mortgage rate you are paying on that dollar.  If your mortgage is costing you 5%, then every dollar you don’t invest but instead use the money to pay-down debt will earn the said 5%.  If you are paying 10-23% like on many credit cards, the argument to eliminate the debt is even stronger.

Of course, if your investments are invested aggressively under the expectation that they will earn more than the mortgage rate you are paying, then you can justify not paying down your mortgage.  After all, borrowing at 5% makes sense if you expect to earn much more.

To quote the Review of Financial Studies “Households with high interest debt have a reduced benefit to equity participation and in many cases should not own any stocks…repayment of outstanding debt almost always yields a higher rate of return than many of the safe (investment) assets.”

As our mortgage interest is not tax deductible, means that your Canadian debt is costing you even more compared to the U.S. consumer.  The ie 4% you are paying on your mortgage is 4% after taxes.  Many Canadians might be better off forgoing the tax deduction from the RRSP, which will eventually have to be paid back, instead py down their high interest debt.

Look at both sides of your balance sheet at the same time.  Add up all your debts and compare the interest cost of all your liabilities against the interest you will be earning on your retirement investments.  If the former is greater than the latter, it is time to pay down some debt and forgo the investment plan contribution.  Oddly enough, not contributing to your RRSP might make you wealthier in the long run.

www.thestar.com/business/personalfinance/article/844358–paying-down-debt-makes-sense?

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on our site or call 416-459-2406


Consider Cash Back Offers Carefully

Everyone likes to be given a freebie and Cash Back Mortgages would appear on the face of it to be an irresistible lure when choosing a mortgage.  However, most people will realize that lenders don’t give away money for nothing.  Mortgage lending is a business built on money, percentage points and return on investment.


A typical cash back offer on the market is 3% cash back when you sign up for a term of 5 years.  The catch is typically when you accept this offer, you are taking the cash back option in place of a rate discount.

Cash Back Mortgages typically come with a ‘tie-in’ which means there are penalty clauses associated with early redemption or a change in lender.  This means you will have to not only pay the greater of the 3 month penalty or Interest Rate Differential but also the prorated return of the cash back.   Although First Time Buyers may need cash for all their associated expenses, the usual channels such as a bank loan along with a better rate mortgage that isn’t tied to a Cash Back could prove to be more cost effective in the long run.

If getting 3% cash back makes the difference between you being able to afford a home  or continuing to rent, then it still represents a great opportunity for home ownership.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on our site or call 416-459-2406

Five Myths About Homeowner’s Insurance

Homeowner’s insurance is one of the most common types of insurance and one of the least understood.  How many people have actually read their policy?


Many homeowner’s believe that their policies will cover them for practically any damage sustained to the house or contents.  The reality is that homeowner’s policies contain many exclusions and restrictions on coverage that can leave you with a coverage gap.  Here are 5 common myths

1-  Loss-Of-Use Coverage:  If you have damage severe enough that you cannot live in your home while it is being repaired, you would think that the insurance company would pay for your accommodations until the repairs were completed.  This is not necessarily true, not all policies include a loss-of-use provision.  If the policy contains this coverage, it will be stated explicitly in the policy.  It will also state a maximum per diem amount or length of time the expenses will be paid for

2- Replacement Cost:  This refers to valuing the loss at the amount it will cost to replace the item.  Most homeowners believe that this is what will happen if they have a claim however, the bulk of policies do not carry this clause.  If not included, losses will be valued at what they were worth in their condition before the calamity.  Replacement cost clauses are a valuable inclusion in a homeowner’s policy

3-  Flood Coverage:  Most homeowner’s policies exclude flood coverage along with earthquakes and other natural disasters.  Floods can occur from a number of causes i.e. hurricane, burst pipes or sewer backup.  Floods are the most common causes of home damage and destruction of contents.  There are companies that specialize in flood coverage.

4-  Termites:  Termites live all over North America but are most destructive in the southern climates where there life cycles are not affected by cold weather.  Termites eat wood and can eat the supports in your house.  Repairing termite damage can cost thousands of dollars.  Most policies exclude termites and other pest damage.

5-  Valuation of Loss:  When you have a house insurance claim, the insurance company will send out an appraiser to determine the extent of the damage and the best way to fix it.  The appraiser will assess a value to the loss which will be the minimum the insurance company can pay in order to meet their contractual obligations.  However, you do not have to take that value as final.  If you can prove your loss should be valued higher, you can negotiate the settlement with the company.  Keeping receipts and pictures of valuable items will help you back up your claim.

Therefore, you should read your policy thoroughly and look for exclusions to coverage and decide how you will cover those risks.  

Globe & Mail, Five myths about Homeowners Insurance

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on our site or call 416-459-2406